This is an application for a Research Scientist Award (RSA) to study the changing roles of the public and private sectors in the financing and delivery of mental health care services. The purpose of this proposal is to conduct research on the economics and services issues raised by the changing roles of the private and public sectors in delivery and financing of mental health services. Research will emphasize the implications for mental health policy. The policy of integration of mental health within health care financing is used as framework to structure research on public and private roles. The central problem with integrating MH/SA with health care has to do with the "insurability" of those traditionally served by the public sector. Costs of serious mental illness have been regarded as "uninsurable" for reasons of 1) excessive costs with insurance and 2) adverse selection problems in private insurance markets. Furthermore, integration would require substantial restructuring of the public mental health system, introducing a third major research issue. The specific research proposed is to: Construct a model of the mental health care system in a state to address the cost shifting and incentive effects of new public and private roles. The model would bring to bear for state mental health policy makers the economic and actuarial approaches to planning that have assisted decision makers in the private sector. Conduct conceptual and empirical research on management of the cost and quality of care in mental health services. Conceptual research would consist of application of principal-agent and contracting theory to payer- provider and provider-patient relations. Empirical research would focus on the impact of payer payment policies, including contracting, on provider behavior. These projects would assist in the design of payment and managed care policies for persons with severe illness. Conduct research on classification and payment system alternatives for risk-rating individuals with severe mental illness. Using data on populations that contain persons with severe illness, this research would evaluate existing classification systems, and propose alternative solutions (which are anticipated to be necessary) based on payment system changes.